Rental Properties!

In March of 2020, we closed on our very first rental property.

The thing is that the rental property journey had started long before then. The story is long and if you have been around long enough, you know that it wasn’t so much a jump off a diving board into the rental property business, but more of a slow wade into the shallow end of a pool. Well, it’s safe to say that we are now officially in the deep end, because 16 months after our first rental property purchase, we now own five rental homes.

Let me break it down a bit because I get a lot of questions on this topic and am happy to share the ins and outs of our personal story.

We sold our little starter home in January of 2020 and moved ourselves into a house that we paid rent for. This meant that we were 100% debt free and had no mortgage or loan payments (we had rent payments, but the bank does not see that as debt). Because we had spent several years “flipping” our starter home and adding value to it, we were able to walk away with a small chunk of cash in hand (around 50k). We used that money to pay the down payment for our first rental property and another one a few months later.

The nice thing about rental properties is that once there is a tenant living in them, they tend to pay for themselves. Of course, there is still maintenance and upkeep and the mortgage to pay, but the way we calculate rent is mortgage + sinking funds = rent, so a tenant is basically paying for all the costs on the home.

A sinking fund is a fund put aside to pay for things that will eventually always need repaired/replaced. Things like a new roof, a new fence, a new AC/heat system. Some of those things don’t need to be replaced for 10-20 years, but you do not want to come around the corner to needing a new AC without any money set aside for it. So we set aside a certain $ amount each month to go towards those big items that may need to be replaced many years down the road.

The unfortunate thing about rental properties is that there is no huge boost in our personal income (in fact, there is no money going into our pockets as of right now). The properties mostly pay for themselves with very little left over. Many people assume that since we own 5 properties, we must be able to quit our full time jobs and just do this, but that is not actually the case. Rental properties are an investment, which typically does not mean an immediate return. It is a LOT of current work for a little amount of current return- but a great return down the road.

So we bought our first two rental properties (on the same street) using the money from the house we sold. We continued to live in a rental house (not owned by us) because that allowed us to leverage more money towards rental properties – if we bought a home to live in, we would have too much debt to receive any loans from the bank.

We worked really hard to make those two properties available for rent- we found fantastic tenants for one home and as we worked to finish the 2nd home, we were contacted by a family member asking if their family could live in the home while they were in between mission field assignments and stuck in the US due to COVID. We quickly agreed and scrambled to furnish the home and make it livable for these missionary family members.

One of my dreams has always been to provide fully furnished affordable housing for missionaries while they are on home assignment. I thought that this dream would be way far in the future, since I mentioned above that rental properties do not start generating disposable income immediately. However, this situation just kind of dropped in our lap and we decided to run with it. We weren’t able to offer reduced rent to the missionaries, but we were able to offer a fully furnished home.

When we saw the house right next door go up for sale, Theo knew that he also wanted to put an offer on it. The problem is that we were out of money for a down payment. So Theo went to some friends and family members and asked if they were interested in investing with us. They provided the money for the down payment, and we manage and do all maintenance on the property.

We had several people interested in this plan and that is the path we went down for the next 3 houses. There are two ways we have decided to split property investment with another person. One way is to borrow the money from a friend/family investor for the down payment and then slowly pay them back, with interest. In this scenario, they do not have any ownership of the home. The other way is that they provide the money for the down payment, we manage and do all maintenance and we each own the home 50/50- both people on the lease/mortgage. Or if there are two investors and one of us, we each own 33% of the home.

So when you hear that we own 5 houses, please know that we own a portion of 5 houses but manage all of them.

We bought our first three houses in fairly rapid succession- March, April and June. We worked all summer long on those three houses and by the time the school year started we had two long-term renters and one home for the missionary family.

In March of 2021, the missionary family moved out and we decided to use that property as an Airbnb or available for any missionaries on home assignment who need it. We have two different missionary families staying in it this summer for a short period of time. When they are not staying there, we decided to run the home as an Airbnb. I love running an Airbnb and so far it has been a very good experience overall. It is also A LOT of work- I for sure see it as a side job for me.

One day while I was cleaning the Airbnb, I looked out the window and saw that the house across the street was for sale. Theo quickly contacted his investors and was able to put an offer on it the same day. There were a few days where we were pretty sure we were not going to be able to buy it, as interest rates had just increased and this home was a bit bigger than our other rentals and needed a lot of work (all flooring needed to be replaced and every wall painted). Then we realized that if we move into it and make it it our permanent residence, we can get a lower interest rate. It was kind of a last minute/spur of the moment decision, but in the end it really worked out for us. It makes it so much easier for me to manage the Airbnb when I’m living right across the street from it, too!

A few weeks later, Theo noticed another house for sale in the neighborhood and put an offer on that one, too.

So if you are keeping track, here is where we are at: Two homes have long-term (wonderful) tenants. One home is an Airbnb and is also available to any missionaries who need a home to stay in. One home is now occupied by us and the final home is undergoing some work and then will be listed for rent for a long-term tenant.

The process of fixing up the houses to make them nice is for sure the hardest part of the process. As of right now, Theo and I have done 80% of the work- we do hire out for carpet cleaning and any HVAC needs, but do the rest by ourselves. Once the home is nicely fixed up, we begin the search for a tenant. This may seem easy, but it actually is not! For one property, we had over 100 people contact us with interest. Of course, only about half of those even went so far as to fill out the application. And over half of those didn’t meet our criteria. Once we had sifted through all the applications, we were happy to give tours and meet the potential tenant. So with over 100 applications, we only had 3-7 seriously interested parties. That whole process ended up taking a good 3 weeks. Once the tenant moves in, managing the properties is very simple and straightforward. The tenant cares for the lawn and their own utilities, so we are only needed maybe once a month to check on a leak or replace an air filter. Theo does have a long list of small projects that need to be done at each property, but I have the feeling that list will never be empty. HA!

I still feel like we are babies at this rental property business. We are still just treading water to stay afloat and aren’t doing any kind of fancy swimming strokes. We have learned a LOT in the last 16 months and I know we will continue to learn so much more as time goes on. In case you can’t tell, Theo is a very driven person, and this has been a lot of fun for him to pursue this life-long dream.

There are many future goals and there are some things that we need to step back and re-evaluate. We sometimes do things quickly and many people would think we are insane (ok, maybe we are.). It hasn’t all been easy, in fact- it’s mostly been hard! We need to constantly ask ourselves why we are doing this and how we can use this to glorify God and serve others, not just build ourselves up. We have not always balanced managing our family and managing this business, but we are always working on it, and always working to include our kids and build this as a family business. We think about how this could be a full-time income stream for our family and the steps that would need to be taken to arrive there.

Also, a huge shout-out to Jim at Hart Homes for alllllllllllll the work that he has done as our real-estate agent. I am not kidding when I say that we have dragged Jim from one of end of Dayton to the other looking at all types of houses and properties. Always with our kids in tow. The entire team at Hart Homes has treated us like gold, even though we are so, so high maintenance.

What other questions do you have about our rental properties or this business? Really, no question is off limits and I am so happy to write other blog posts to clarify anything or give more details for anyone who is possibly interested in pursuing this type of thing themselves.

And if you are ever wanting to visit the Dayton, OH area- please let us know! We would be more than happy to host friends and family in our little “guest house” Airbnb. If you know any missionaries who are looking for housing in the area, please let them know!